What is the all equity value of the investment

Assignment Help Financial Management
Reference no: EM131918471

The MS Company is planning to put a manufacturing facility in place to build widgets. The systematic risk of this project alone is 25% greater than they currently manage. The company has a target debt to value ratio of 35%. The beta of the assets currently managed is 0.8 and they face a 36% tax rate. The initial investment cost is $4,200,000 and the expected cash flows after tax are $1,200,000 per year for 6 years. The risk-free rate is 5% and you believe the historical market risk premium of 8.5% is a reasonable estimate.

A) What is the all equity value of the investment?

B) What is the added value if the company finances this project with $682,044 worth of 16% debt which requires an interest payment until maturity when the full principle is due?

C) If the Albanic County Board of Commissioners approaches the MS Company with an offer to raise the needed $682,044 debt capital as 15% perpetual debt, should the company accept the offer?

Reference no: EM131918471

Questions Cloud

Determine the expected rate of return for the stock : Determine the expected rate of return for the stock. Should you purchase this stock? Why?
Operations and supply chain management : As it relates to Operations and Supply Chain Management, Design of Products and Services
Use the equation to find hartman unlevered beta : Hartman Motors has $13 million in assets, Use the Hamada equation to find Hartman's unlevered beta,
Functional units of an organization : What is ERP and how it connects the functional units of an organization. Explain it would help an organization by implementing an ERP system.
What is the all equity value of the investment : The MS Company is planning to put a manufacturing facility in place to build widgets. What is the all equity value of the investment?
How has the concept of aviation safety : What are some of the realizations about loss and the idea of safety that are prevalent today? Use terms associated with aviation safety and program management.
How much money will he have at the end of four years : Terry is calculating the present value of a bonus he will receive next year. The process he is using is called ?
Read each of the five cases in health administration : Read each of the five cases in health administration. Explanation for each case that explains why the case represents its particular ACHE competency domain.
What is the firm gain or loss-what is break-even point : What is the firm's gain or loss at sales of 5,000 watches? Enter loss (if any) as negative value. What is the break-even point (unit sales)?

Reviews

Write a Review

Financial Management Questions & Answers

  What is their equity after

The Taylors have purchased a $310,000 house. They made an initial down payment of $30,000 and secured a mortgage with interest charged at the rate of 9%/year on the unpaid balance. Interest computations are made at the end of each month. If the loan ..

  The optimal risky portfolio or tangency portfolio

If you do NOT have the option to make a portfolio, which asset you pick? Explain why in two lines max. You call P2 optimal risky portfolio or tangency portfolio

  Capital budgeting criteria-ethical considerations

A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environ..

  What is the company target debt-equity ratio

Pardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $13.8 million, and the company paid $705,000 in flotation costs. In addition, the equity issued had a flotation cost of 6.8 percent of the amount raised, where..

  Employee retirement income security act is accurate

Which of the following statements about the Employee Retirement Income Security Act (ERISA) is accurate?

  Growth-income and preservation of capital

Discuss asset allocation strategies you could employee in each of the following situations. growth, income, preservation of capital

  What was the percentage underwriting spread

What was the percentage underwriting spread? How much did the company raise after all expenses?

  What is its self-supporting growth rate

How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate?

  Customers cost-effective monitoring and control system

Its XM1Z1A and XM442 electronic overspeed detection relay modules provide customers a cost-effective monitoring and control system for turbo machinery.

  Show the respective changes for balance sheet accounts

Recently the Fed has been engaging in a contraction policy by selling Treasurysecurities to the non-bank public .

  Calculate the initial price and new price

A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 5.1%. A-rated bonds sell at yields of 5.4%. Assume a 10-year bond with a coupon rate of 4.6% is downgraded by Moody’s from Aa to A rat..

  Ethical requirements as outlined in the sarbanes-oxley act

Assess the ethical requirements as outlined in the Sarbanes-Oxley Act, indicating whether or not you believe the requirements are adequate to ensure integrity in financial accounting and reporting activities. Suggest improvements that may be needed w..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd